Curing the hospital-funding stoush

The feud over federal hospital funding between Victorian and the Commonwealth is producing much heat and little light. A much-needed arbitrator could settle the dispute very quickly -- something Tony Abbott should bear in mind as election day draws closer

Queues for public elective surgery in Victoria, already long, are growing longer still, all because federal bureaucrats disagree whether the state’s population is rising or falling.The Commonwealth Treasury says the state’s population fell by 11,000 in 2011-12, but Australian Bureau of Statistics data shows growth of 75,000.

The government of Victorian Premier Ted Baillieu seems to be the one party in this wrangle with a definite grasp of numbers, and they are grim ones. As a consequence of federal Health Minister Tanya Plibersek going with the Treasury’s figures, Victoria’s funding share under the 2011-15 National Healthcare Agreements is being docked by $475 million over four years

While Plibersek and her Victorian counterpart, David Davis, are the chief brawlers, the sufferers are Victorian public hospitals, their frontline services, staff and, most of all, their patients. To economise, hospital managements are being forced to close beds, cut inpatient and outpatient services and impose layoffs. Even petty efficiencies like not replying to emails (saving valuable minutes of staff time!) are being adopted by hospital managements trying to live within their reduced means.

Plibersek’s defence is that federal public hospital funding to Victoria is still growing by $900 million over four years. She avoids saying that, thanks to the disputed population adjustments, this growth is considerably less than it would otherwise have been. Ironically, this very same growth defence was rejected by Labor states, including Victoria, when John Howard’s health minister, Kay Patterson, used it to justify real growth of a “mere” 17% in the 2003-08 Australian Health Care Agreements, compared to the 28% real growth of their predecessors.

What goes around comes around, as they say.

If Plibersek is claiming she is bound to enforce a contractual agreement with the states, she’s wrong. Public-hospital funding agreements aren’t contracts: they’re non-binding declarations of how the Commonwealth will disburse its legislated appropriations. They are not legally enforceable.

For guidance out of this self-inflicted mess, Plibersek should look to her Liberal predecessor, Michael Wooldridge. In 1999, the Howard government unwisely rejected the recommendation of an agreed independent arbitrator, former Australian Statistician Ian Castles, to apply more generous annual indexation to the Commonwealth’s then public-hospital funding grants. Wooldridge became a fall guy, heavily mauled by the states, the the Labor Opposition and the media, but he learned a valuable political lesson in state relations.

Thus, in 2000, Wooldridge successfully persuaded John Howard and Peter Costello not to claw back $3 billion from the states due to a sudden steep rise in the number of people covered by private health insurance as a consequence of premium penalties being introduced for non-joiners over 30. Signed in 1998, when health insurance numbers were plummeting, the then-agreements said that the states received more public hospital-money when membership fell, but less when it rose. Wooldridge’s adroit decision meant an effective $3 billion windfall for public hospitals, headed off the mainly Labor states’ attacks on the Howard government’s pro-private health policies, and vindicated his political judgment.

In 2001, Wooldridge also turned turn a blind eye to a situation almost identical to Victoria’s, when a slight drop in Western Australia’s population triggered a significant public-hospital funding clawback. Although the potential saving was worth tens of millions, Wooldridge left things alone. In both cases he was politically mature enough to know that the public would never understand, or forgive, patients and services becoming collateral damage in technical disputes between state and federal governments.

Wooldridge’s history lesson suggests that if Plibersek and Davis can’t or won’t solve the problem, someone should do it for them. As happened in 1999, and given this unseemly fight primarily is about arcane statistics and data, the Commonwealth and Victoria should appoint a pre-eminent and authoritative arbitrator – another former Australian Statistician, say – who knows all about interpreting complex statistical and population numbers and trends. That person could pronounce absolutely and confidently what the population picture for Victoria truly is for the life of the funding agreement. That arbitrator’s word would be accepted as final.

Timewise, this wouldn’t be a big job. If appointed now, an arbitrator’s decision could be delivered by the end of March. In the meantime, the Commonwealth’s funding cuts would be reversed, with Victoria restoring services to where they were when this stoush blew up in December.

Plibersek is the aggressor in this dispute. Politically, there’s no loss of face for Davis in pushing for arbitration, especially as the numbers are probably in his favour. If Plibersek is genuinely confident of her position, she would have no reason to reject arbitration. But given that the political risk would then be firmly on Canberra’s head, not Victoria’s, that course seems unlikely.

More widely, this frankly pointless stoush reflects the endemic problem of states’ opium-eating dependence on federal specific-purpose funds. It highlights the lack of an effective, standing arbitration mechanism to resolve inter-jurisdictional funding disputes as cleanly and as politics-free as possible. The politicised Council of Australian Governments can’t do that.

What COAG can do is establish such a mechanism, and a pro-federation Commonwealth government should endorse it. Like an equity court adjudicating a legal contract, it would have the independence, competence and serious clout to ensure funding arrangements serve the best interests of the public, as intended, and that they are not held hostage by inter-governmental political posturing, ministerial whim or dubious claims.

Such an independent and authoritative circuit-breaker would be invaluable, both practically and politically. Tony Abbott could and should press for such a mechanism early in his probable prime ministership. Abbott will face battles enough in government without wasting scarce political capital on needless funding stoushes with the states, in which party allegiances usually mean nothing. He also is experienced enough to know that while he would win some and lose some from arbitration, that’s political life.

In the meantime, however, Plibersek and Davis should rise above political stubbornness and stop treating Victorian hospital patients as collateral damage.

If Plibersek won’t "do a Wooldridge", Davis should demand arbitration. The polls suggests that voters are increasingly fed up with both the federal and Victorian governments, and that they want action rather than finger-pointing. Ministers need to stop bitchin’ and start fixin’.

Terry Barnes advised former federal health ministers Michael Wooldridge and Tony Abbott. As a senior public servant in 2001-02, he administered the Australian Health Care Agreements.